Video ownership suffers dramatic decline

Normally, video sales are strongest in the fourth quarter, as consumers give the gift of movies during the holiday season. According to new data from the Digital Entertainment Group (DEG), though Q4 disc sales revenue was higher than any other quarter this year, it was 22% lower than Q4 2016. Sales reach $1.45 billion, compared to $1.2 billion in Q1 2017 and $1.87 billion in Q4 2016.

Electronic video sales (EST, as DEG calls it) had performed well in the first three quarters of 2017, but the fourth quarter was a different story. There was no increase over Q4 2016, and just a 4% increase over the previous quarter.

SVOD grows dramatically, becomes seasonal

As Netflix goes, so goes the SVOD market. Netflix U.S. revenue for the first three quarters of 2017 was $4.52 billion, 23% higher than in the same three quarters in 2016. In the fourth quarter of 2017, DEG says SVOD revenue $2.56 billion, up 29% from Q4 2016.

In the past, SVOD revenue hasn’t shown much seasonal change. Up until 2015, it increased steadily quarter after quarter. For example, in 2015 quarter-over-quarter revenue increases were in a tight 17%-20% range. The trend changed in Q4 2016, with a quarter-over-quarter increase of 24%. In 2017, QoQ growth sputtered along, finishing with a 35% spike in Q4 2017. The change in growth trend could indicate that consumers are loading up on SVOD content for the holidays and then canceling services in the New Year.

For the year, subscription streaming services grew revenue from $7.29 billion to $9.55 billion, an increase of 31%.

Where the entertainment spending went in 2017

The first thing to note from DEG numbers is the dramatic shift from physical media to digital. In Q4 2014, 61% of home entertainment spending went to physical media and 39% to digital. Fast forward to 2017, and that ratio has completely reversed. 60% of spending went to digital and 40% to physical.

In 2014, consumers spent 39% of their entertainment dollars on discs and 23% on SVOD. In 2017, they spent 47% on SVOD and 23% on discs. The only other medium (excluding pay TV) that consumers spent more of their entertainment budget on in 2017 than in 2014 is digital video sales. It increased share a modest 2%.

Why it matters

The inexorable growth of SVOD, at the expense of every other entertainment medium, continued in 2017.

SVOD now takes 47% of every dollar spent on home entertainment, up from 23% in 2014.

By the end of 2018, SVOD will account for more than half of home entertainment spending